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Reed Resources Barrambie Vanadium Project capital expenditure to be slashed

Reed Resources (ASX: RDR) has received a filip today with news that the capital expenditure (MUTF:CAPEX) for the Barrambie Vanadium Project will be 18% lower to A$100 million compared to the 2009 Definitive Feasibility Study (NYSE:DFS).

The consortium of China Nonferrous Metal Industry’s Foreign Engineering and Construction Co. Ltd (NYSEMKT:NFC) and Arccon (WA) Pty Ltd delivered the news to Reed.

The reduction has been achieved from the engineering, procurement and construction (NYSE:EPC) budget estimate for the 6300 tonne per annum project.

The direct construction costs and EPCM Fee estimate has been reduced from A$539 million to $439 million and the processing plant OPEX is also estimated to be 6% lower than the DFS, despite the strong Australian dollar.

The reduction is based on plant optimisations arising from NFC and Arccon’s design work and the use of Chinese equipment and services.  

The Barrambie project is located 80 kilometres north of Sandstone in Western Australia and is one of the world’s highest grade vanadium deposits.

The NFC/Arccon budget estimate is to an accuracy of +/- 7.5% and subject to future cost escalation and foreign exchange movements.

The direct construction costs and EPCM fee estimate has been reduced from A$539 million to $439 million.

The total DFS estimate of A$629 million included A$50 million for indirect (Pre-production) costs and A$40 million for a Ferro-vanadium circuit. However, with the production focus now high-purity vanadium pentoxide the ferrovanadium circuit is not required.

The total construction cost based on the NFC/Arccon budget estimate and holding constant the indirect, pre-production costs, would now amount to A$489 million.

The expected capital cost savings are in addition to processing plant operating cost savings of about 6% over the DFS estimates recently identified by Sinclair Knight Merz, which are primarily due to reductions in power and soda ash consumption arising from plant re-design work carried out by NFC/Arccon to-date.

The company expects to receive a final, fixed price EPC quote for Barrambie in early August, at which point a full reconciliation to the DFS capital cost estimate will be completed.

A key term of Reed Resources' memorandum of understanding (NASDAQ:MOU) with NFC/ Arccon is an obligation on NFC to procure a debt term sheet from Chinese financial institutions for at least 70% of the project’s total funding requirement. Notwithstanding this debt gearing, the equity capital component for the Project would still remain significant.

Together with its advisers, Azure Capital, the company continues to progress discussions with potential equity financiers, including parties with an interest in off-take.

Several indicative proposals have been received to-date, which suggest that an independently financed, stand alone special purpose vehicle for the Project is an achievable outcome.

An Initial Public Offering of the company’s vanadium subsidiary is Reed's current strategy, which would also relieve the need for further equity raising in order to support the development of the Barrambie project.